Fortunately for us, the world has responded by drawing down their SPRs (strategic petroleum reserves) ever since the strait closed, and China’s actions of greatly cutting imports and somehow making it work (nobody knows exactly how) have been the primary reason we haven’t already seen much higher oil/gas prices in the US.
How China Saved the Global Oil Market - The Dispatch

However, SPRs aren’t infinite and you do run out at some point. We are quickly getting near the end of what we can draw out of the US SPR before what is left is reserved for the US military and not consumer uses (we just drew down 30% of the entire reserve in less than 6 months and now under 300 million barrels).
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCSSTUS1&f=W

Diesel prices are pushing up near record highs, which causes inflation ripple effects thru the entire economy:
Diesel in California hits $7 as wars in Europe, Middle East strain supply
AAA Fuel Prices

30% higher gasoline prices and 50% higher diesel prices than a year ago are sucking all the spare cash out of the American consumer’s wallet. Our savings rate is now under 3%, which historically has been a “danger zone” level we’ve only seen before the 2008 financial crisis (when HELOCs were fueling spending and savings rates were at record lows from 2005-2007), and briefly in the summer of 2022 due to the oil/gas price spike from the Russian invasion of Ukraine.

US personal savings rate hit 2.7% in June:
Personal Saving Rate (PSAVERT) | FRED | St. Louis Fed

Wage growth (3.9%) isn’t saving the day either as it is just barely above CPI (3.3%):

Wage growth:
12-Month Moving Average of Weighted Median Hourly Wage Growth: Overall (FRBATLWGT12MMAWMHWGO) | FRED | St. Louis Fed

CPI:
Consumer Price Index for All Urban Consumers: All Items in U.S. City Average | FRED | St. Louis Fed


Wal-Mart’s cautionary guidance this week on the consumer:

"As you go through month by month in the last quarter, you can tell when fuel prices increase and got above $4, and perhaps there's a psychological impact to that, that there are choices that consumers are making," Walmart CFO John David Rainey told investors on the call. "So June was a little more obvious as we look at the quarter in terms of customers making trade-offs."
Walmart stock drops 9% as sales growth slows, customers make 'trade-offs' amid high fuel costs

I’ll end it with this… loan delinquency rates are moving higher across the board, with subprime auto loan delinquency rates hitting record highs (now higher than even during the 2008 financial crisis):
Subprime Auto Loan Delinquencies Hit 6.9%, Blowing Past the Worst of 2008 — Glitchwire

If these are the good times, I hate to see what happens when they end!

What is the primary driver of this? We are now a bit over 2 weeks into the largest oil supply disruption in history, and uncertainty is still very high on when the Strait of Hormuz will fully reopen.
https://www.cnbc.com/2026/03/09/the-us-iran-war-is-the-biggest-oil-supply-disruption-in-history.html

Before the war, 20-22+ million barrels per day were transiting thru the Strait (about 20% of the current global oil production). The vast majority of that (sans Iranian shipments headed to China) are no longer making it thru in the last 16 days, putting us 250-300 million barrels behind what typically gets shipped in that period. The IEA’s unprecedented release of 400 million barrels per day will take time to do and is likely completely offset by what hasn’t shipped thru the Strait in a soon as 5-10 days from now based upon my estimates. Without a meaningful reopening of the Strait to oil tankers within the next 2-4 weeks, the only way to make up for the significant shortfall in oil deliveries (especially in Asia) will be massive demand destruction via extreme upward moves in oil prices. If we are still in a situation where less than 25% of typical oil shipments are transiting the Strait a month from now (April 15th), then not only is $5-7/gallon gas and $6-8/gallon diesel possible for average prices in the U.S. (West Coast higher)… but I would consider likely. Let’s hope we find a resolution by then because otherwise the short-term impacts to the global economy (especially in Asia who greatly depends on that oil as a source) will be significant as they will be forced to curtail industries and transportation.

https://en.wikipedia.org/wiki/Strait_of_Hormuz#/media/File:Strait_of_Hormuz_Transits.webp

Before we try to make a valuation assessment, I’ll provide some of Warren Buffett’s quotes on gold just to make things a little more fun (he has never been a huge fan):

“Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

“Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything.”

“The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.”

Mr. Buffett does have a few good points, and a key one is that gold and silver don’t pay any form of dividend which makes typical valuations challenging. You have to take a bit more creative big picture approach in assessing a relative valuation (in the case of gold), and a shorter-term technical approach to determine where silver’s prices are getting wildly out of hand.

Starting with gold, one valuation approach that tends to work well over the decades is the gold to oil ratio. This measures the relative value of the world’s primary safe-haven asset (gold) against the top productive commodity (oil). Ratios below 10-15 tend to occur during high oil prices and/or low gold prices, while ratios about 40-50 tend to occur during high gold prices and/or low oil prices. As you can see from the chart below, extreme ratios due typically revert over a few years. With a current very high gold to oil ratio of 82+, we could easily see a rise in oil prices in the years ahead mixed with potentially less bullish action in gold for a bit (keep in mind the ratio could go down with a large bump up in oil prices while gold still keeps climbing as well).

Historical gold to oil ratio:

As for silver, that gets a bit trickier due to being a smaller market cap asset versus gold (~$6 Trillion versus $35+ Trillion) that lends itself to much higher periodic volatility during booms and busts. The gold to silver ratio tends to work well over time in showing when silver is undervalued versus gold (when ratio is 80+) and when it is richly valued versus gold (when ratio is <40). Silver is quickly approaching those richly valued levels. At current gold prices of $5080, a 40 gold to silver ratio would be a silver price of $127 (versus the current silver price of $108).

Historical gold to silver ratio:

Another method we could look at is silver’s price deviation from the 200-day simple moving average. Similar methods historically have worked well in determining when Bitcoin reaches overheated levels (the Mayer Multiple, in that case values 140% above the 200SMA). Silver is currently 131% above the 200-day SMA, which is much higher than the last bull market peak value of 74% above the 200-day SMA on April 29th, 2011. You have to go all the way back to the 1980 silver peak to find anything that exceeds today’s overheated levels (and silver took 31 years to reach the 1980 peak price again during the 2011 commodities supercycle).

Silver’s price above 200-day moving average:

If you are entering the gold+silver market for the first time right now, keep in mind that according to the valuation metrics I’ve described above the risks are relatively high (and very high for silver). If you have an existing gold and/or silver position that has profited handsomely, I hope you can use these metrics to aid in your assessment in potentially taking profits at some point in the future on a fraction of your position that makes the most sense.

Notable times it was above 30:
- The end of the Roaring Twenties in the fall of 1929
- Dot-com boom (1997-2002)
- Recent era (2017-now)

Notable times it was above 40:
- Dot-com bubble peak (January 1999-September 2000)
- Right now (December 2025)

Source: https://www.multpl.com/shiller-pe

As we climb into rarefied air (40+ Shiller CAPE), we do have to expect that inflation-adjusted returns will leave a lot to be desired over the next 10-15 years (with plenty of ups and downs along the way).

Now that we know where we are (a rare and big party in the equities market), what happens from here? As you can see from the 150+ years of historical Shiller CAPE values, high valuations can go on for many years and so can low valuations. There has to be some other large catalyst to take the wind out of the sails to crash the party because otherwise it tends to just keep on going. Selling all your stocks just because valuations are high is a silly idea that will lead to a lot of regret (and potentially re-entering the market due to emotions near the actual top).

What are 3 major factors that can change market direction?
- Deterioration/recovery of high-yield bonds (how marketphases.com signals work)
- Rapid increase in energy prices (especially oil) as we saw in 1973, 2008 and 2022
- Federal Reserve raising interest rates (especially 1999-2000)

Knowing that, where are we in December 2025 according to those 3 factors?
- High-yield bond credit spreads are low (we currently have a “risk on” green light signal on marketphases.com that began in May 2025 after the recovery from the April 2025 tariff announcement)
- Energy prices are relatively low (gasoline under $3/gallon in US, natural gas <$4/tcf)
- Federal Reserve just lowered interest rates last week (now 3.5-3.75%)

Looking at our factors, things aren’t looking so bad for crashing the party early. However, we will need to keep a very close eye on things in the months ahead to look for potential changes. All good things do come to an end eventually.

https://fred.stlouisfed.org/series/BAMLH0A0HYM2

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